But what does the organization see ahead for the economy and SMEs?
Canada’s small and medium sized businesses continue to face headwinds, despite growth expectation for the economy from the Canadian Federation of Independent Business (CFIB).
The organization has published its latest Main Street Quarterly and says the Bank of Canada’s policies are not supportive of growth for SMEs and even as it forecasts economic growth to edge up to 0.9% year-over-year in the second quarter from 0.8% in the first quarter, there are significant issues for business owners.
The report, in partnership with economic and strategic analysis firm AppEco, notes the easing of inflation in the first three months of 2024, but business investment contracted and is expected to do so further in the second quarter albeit at a slower rate.
CFIB’s chief economist and vice-president of research, Simon Gaudreault, said businesses need the BoC to do more.
“As widely expected, the Bank took a wait-and-see approach for a sixth consecutive time and didn’t announce any rate cuts. With more signals showing that inflation is generally getting under control, there’s bigger pressure on the Bank to lower rates in the near term,” he said. “The Bank’s restrictive policy is not going to help SMEs in the next few months as they’re continuing to face headwinds as shown by a decrease in investment and a high level of insufficient demand.”
Insufficient demand
Insufficient demand – the top limitation on sales or production growth – is a key issue for SMEs with half of firms participating in the research citing this, the highest level since the pandemic and similar to where it was in the economic slowdown of 2015. Businesses are reluctant to increase prices as a result.
While some industries are more impacted than others by weaker demand, such as retail and hospitality vs. professional services. Overall, there are roughly equal levels of insufficient demand across the good producing and services producing sectors.
“Our forecasts suggest that the economy will see positive growth in early 2024,” added Gaudreault. “However, business owners remain modestly optimistic about the future of their business and will be watching the upcoming federal budget closely for any sign of meaningful cost relief, as well as the start of widely anticipated interest rate cuts in the upcoming months that could improve sales and lower financing costs.”
